Airport Privatisation

1
Airport Privatisation
Dr. Mike TrethewayVice President and Chief
Economist InterVISTAS Consulting Inc.
24 Oct 2000
2
Outline

• The Vancouver International Gateway
• Airport Business Models
• general
• US model
• Canada
• Some Airport Economics

3
The Vancouver International Gateway
4
(No Transcript)
5
BOS
YVR
LAX
SIN
6
Pre Open Skies U.S. Destinations
Vancouver
Spokane
Seattle
Portland
Chicago
San Francisco
San Jose
Los Angeles
Honolulu
7
2000 U.S. Destinations
Vancouver
Spokane
Seattle
Portland
Boston
Minneapolis
New York
Detroit
Chicago
Washington
San Francisco
Salt Lake City
Denver
St. Louis
Las Vegas
Los Angeles
Palm Springs
Phoenix
Maui
Dallas
Honolulu
1997 Routes Expected 1999 Routes
Houston
8
International Destinations
Vancouver
Amsterdam
London
Frankfurt
Seoul
Beijing
Tokyo
Nagoya
Delhi
Osaka
Shanghai
Taipei
Mexico City
Hong Kong
Honolulu
Singapore
Nadi
Sydney
Auckland
Melbourne
9.16.96
9
YVR Pax Facilitation

• Transit Preclearance
• Transit-Without-Visa
• Taiwan, Philippines, Indonesia, Thailand
• CanPass pilot
• Only terminal designed to work with Cruise Ships

10
Airport Business Models
11
Airport Operational Models

• US Municipal government
• Canada Airport Authorities
• Elsewhere Federal government
• Elsewhere Private, for profit

12
Previous Status

• US Local government operation
• or local airport authority with quasi government
  powers
• Rest of World Operation by Federal Government
• Departmental
• A few crown corporations existed

13
Non North America Trend

• Trend Private Sector Operation
• typically with price regulation regime
• Ex) Auckland International Airport Co
• first responsibility to shareholders
• airport operation is 2nd
• no price regulation
• but required consultation
• Australia (not Sydney)
• private with aeronautical price regulation

14
UK

• BAA privatised 1987
• stock float to general market
• sale of lands, terminals, etc.
• no concept of competition between airports
• LHR, LGW, STN, SOU
• price cap regulatory system

15
Australia

• Privatisation 1996-present
• individual airports
• lease of lands, terminals, etc.
• to consortiums, not general market
• preserve competing airports
• Regulation
• prices
• access

16
New Zealand

• Privatisation of federal shares
• to general market, some cities own minority
  shares
• sale of lands, terminals, etc.
• No regulatory system in place
• but legislative authority exists
• airports not required to use land for airport use
• replacement (not historical) costs required
• proper economic signals

17
Costa Rica

• Privatisation 1998
• to consortium
• lease of lands, terminal, etc.
• Regulatory System in place
• CPI-X
• but bidders included X in bid
• low price but high X vs. high price low X

18
US Airports
19
US Airports Vary

• US Airports vary significantly in terms of
• Governance structures
• Degree of transparency
• Powers
• Accountability

20
US Governance Models

• Direct Government
• County Milwaukee County Airport
• airport governed by County Board of Supervisors -
  publics works committee
• consent (consolidated) motions
• City
• SFO airport board only sets policy
• excluded from day to day operations
• State
• Hawaii, Alaska

21
US Governance Models

• Quasi-government
• Seattle Port of Seattle Commission
• Elected, Taxation Powers
• Reno
• quasi government
• Orange County
• airport has zoning powers into community
• Path NY NJ
• governors can veto decisions of board

22
Canada
23
Canadian Airport Policy

• Federal Task Force Advisory Committee (1985-87)
• Motivation
• lack of local accountability and transparency, by
  Federal Government
• lack of development
• Feds had no investment funds
• strong growth industry

24
World GDP vs. Air Cargo
25
Canadian Task Force

• The Policy rejected
• US model
• to avoid slow processes of Transport Canada and
  US airports
• need access to private capital
• Private sector
• lack of experience at the time
• wanted local accountability

26
The Task Force

• The policy rejected price regulation of airports
• Airports were and are a long way from cost
  recovery on non-contestable services
• I.e., terminal and runway
• what is purpose of regulating prices of
  not-for-profit organisations
• concern of gilt edging?
• Price regulation would not prevent this

27
Original Canadian Model (LAA)

• No political, civil servant representation
• No government operation
• for 26 NAS airports
• Private Sector, but Not-for-profit
• I.e., not-for-shareholder
• profits must be re-invested
• but to be run as businesses

28
Canadian Model

• Private sector
• access to debt markets
• privately managed
• Locally selected boards
• local businesses/ professions to have important
  role
• Local pricing

29
Airport Authorities

• Federal Ownership of Land and Existing Terminal
• Lease to Airport Authorities
• Allows Feds to Operate Airport
• Should an Authority Goes Bankrupt
• Otherwise banks could close airport

30
Two Variants

• Local Airport Authority 1992
• YVR, YEG, YYC, YUL/YMX voluntary
• locally appointed boards
• Canadian Airport Authorities 1995
• other 21 NAS airports must transfer
• federal and provincial appointees
• rents are capped
• accountability principles

31
5 Year Review of LAAs

• Only UK and Canada have conducted reviews of
  airports
• Recent models have weakened local accountability
• ports, CAAs leaned toward increased federal role
• Positive results were found for LAA performance
• note that CAAs are a different format

32
Canada Comparisons CAA model

• Toronto (GTAA)
• 12 municipal board members
• 1 provincial
• 2 federal
• 0 from Chamber/BOT, professional organisations,
  etc.

33
Canada Comparisons

• Ports
• All board members appointed by Minister of
  Transport
• Minister will consider nominations by cities,
  users, provinces, but appointments are federal
• some say these boards are not locally controlled

34
Canada Comparisons

• Nav Canada
• Stakeholder board
• some say this is equivalent to airlines running
  the airport authority
• Not a lease from federal government
• note that there are no land assets
• 100 purchase from federal government

35
Some Economics
36
Airports Compete

• 35-50 of Traffic is Connecting
• Alternative connection points
• Some Destination Competition
• Conference locations
• Cruise Port of Call
• Retail is Subject to Passenger Planning

37
Airport Revenues

• Airport Revenue per Flight
• Landing Fee 2,000
• Terminal Charges 2,000
• Parking 600
• Food/Beverage/Retail 2,600
• AIF 2,900
• Total 10,000
• Annual 3.6 million

38
Airport Improvement Fee

• Not-for-Profit consequence
• no equity capital
• cannot achieve 100 debt financing
• AIF injects cash which is then levered
• Shifts financial risk from airlines to airports
• previous airlines effectively guaranteed airline
  revenues
• now revenues traffic based

39
Thank You